bhargava: India’s passenger vehicle market is expected to grow by 8% next year, Maruti’s Chairman Bhargava

“Today we are in a much more optimistic situation. The availability of semi-conductors which had seriously affected growth has improved, the economy is doing well. This year we have got to a stage where we (passenger vehicle industry) will breach levels seen in FY19 and lay the foundation going forward”, said Bhargava. Buoyant consumer demand, especially for midsized passenger vehicles, in the local market are expected to spur sales close to the 4 million mark this fiscal.

Maruti Suzuki itself is expected to close the year with sales at similar levels as FY19. Bhargava informed, “The industry will breach FY19 levels. Our sales will be in the same order as FY19. That is because the small car segment has declined the last few years. Major demand is coming in for SUVs. We have (also) started growing in that segment.” Sales of small cars are unlikely to increase even in the coming year with inflationary pressures further worsening the impact seen on demand in the segment due to the rise in vehicle acquisition costs the past three years.

The growth projection comes close on the heels of sales of passenger vehicles crossing the one million mark for the first time last quarter. The strong revival in demand post the pandemic, in fact, enabled Maruti Suzuki to beat street estimates and post a four-fold increase in net profit at Rs 2061.5 crore for the second quarter ended Sep 30, 2022.

The company had reported net profit of Rs 475.30 crore in the corresponding period of the last financial year. Motilal Oswal had expected Maruti Suzuki’s net profit to rise 297% to Rs 1900 crore in the quarter under review.

Revenues from operations in the period under review rose 46% to Rs 29,930.80 crore , from Rs 20,538.90 crore in the year-ago period. The company sold a total of 517,395 vehicles during the quarter, the highest ever in any quarter. While sales in the domestic market stood at 454,200 units, exports were at 63,195 units.

Shortage of electronic components impacted production by about 35,000 vehicles in this quarter, the company said in a statement, adding the same period previous year was marked by “acute shortage of electronic components”. Maruti Suzuki consequently could sell a total of 379,541 units in Q2FY22.

The company had pending orders for 412,000 vehicles at the end of last quarter. Nearly a third of the bookings are for the newly launched models. FY2021-22. Bhargava said the company has “not” given up on its target to clock annual sales of two million units, but a lot would depend on the adequate availability of semi-conductors in the remaining five months of the year. He informed, “At the moment, we are finding there is semi-conductor constraint from one company affecting some of our models. If we get good supply the next five months, we will do well.”

Currently, the company said it’s capacity utilisation stands at about 90%, and could have produced more if not for the chip shortage.

Operating profit for the company last quarter stood at Rs 2046.3 crore, as against Rs 98.8 crore registered in the same period last fiscal. Maruti Suzuki said the company’s operating profit last year had dipped sharply owing to steep commodity price increases and electronic component supply constraints and hence results of Q2 FY2022-23 are not strictly comparable with those of Q2 FY2021-22.

The company said it has been making simultaneous efforts in securing electronic components availability, cost reduction and improving realization from the market to better its margins.

Overall, Bhargava said the composition of the passenger vehicle market is undergoing a change with a larger percentage of sales now coming in from vehicles at the higher end of the market. The company will work on expanding its share in utility vehicle market, while continuing to maintain its presence in the small car segment. “If customer needs change, we have to change with them. Those not buying today are the ones who have lost the ability to buy. We are not getting out of it (small cars) or neglecting the segment. We will do everything we are doing for bigger vehicles, be it minor or full model changes”, said Bhargava reiterating, “It (small cars) are still a very large and important part of our business.” Sales of small cars in the local market stood at 11.51 lakh last year.

Separately, Bhargava said the company is on-track to launch its first electric vehicle in the Indian market by 2025. He said, “I don’t think we have started late (compared to Tata Motors). We are starting in a systematic manner by localising more be it components or batteries, we are looking closely at how infrastructure is developing. It is not just a matter of buying or selling cars, but ensuring that our customers get the service he needs from his vehicle.”

Mitul Shah, Head of Research at Reliance Securities, said the company has posted a decent performance last quarter. “We expect the domestic PV industry to record double digit volume growth in FY23 and FY24, which would support MSIL’s business. Moreover, sales of premium products would further increase. MSIL would enjoy the benefit of higher market shares in CNG variants, as preference for CNG vehicles has been rising”, said Shah.

Shares of Maruti Suzuki closed at 9494.10 apiece, up 4.94% on the Bombay Stock Exchange (BSE). The results were announced in market hours.